Mar 9, 2026
Lisa, a 69-year-old retiree in Miami, is ready for a change. After decades of living in the outskirts of the city, she and her husband want to relocate somewhere quieter and more affordable. Their $1.1 million home is costly to maintain, and they’re hoping to cash out and downsize.
But there’s one complication: years ago, Lisa transferred her home into an irrevocable trust, naming her two sons as both beneficiaries and trustees.
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At the time, it seemed like a smart move to protect the property and ensure a smooth inheritance process. Now that she’s considering a sale, she’s unsure — can she sell the house and use the proceeds to buy a smaller one, or does the trust restrict how money can be used?
If your home is held in an irrevocable trust — or you're thinking about placing it in one — there are some important factors to understand before you downsize.
What is an irrevocable trust?
An irrevocable trust is a legal arrangement in which you transfer ownership of an asset, such as a house, to a separate legal entity known as a trust. Once transferred, the trust (not you) legally owns the asset (1).
The person who creates the trust is called the grantor, and the people who benefit from it are beneficiaries. The trust is managed by one or more trustees, who make decisions about how the assets in the trust are handled.
The main difference between an irrevocable trust and a revocable trust is control. With a revocable trust, you can change or dissolve it at any time. With an irrevocable trust, you give up that control — it can’t be changed or canceled unless all beneficiaries agree or the court approves the modification.
Homeowners often use irrevocable trusts for reasons such as:
- Asset protection: Shielding property from creditors or lawsuits.
- Estate planning: Reducing estate taxes and ensuring assets transfer smoothly to heirs.
- Medicaid planning: Excluding a home from Medicaid eligibility calculations if the trust is created before the look-back period.
Assets placed in an irrevocable trust can include real estate, investments, or even life insurance policies. While a trust offers many protections, there are trade-offs to consider.
Once the asset is owned by the trust, the grantor loses direct control. The trustees must approve any sale or purchase of property held by the trust. This makes it crucial to appoint trustees you fully trust because they'll control decisions about your assets.
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How does it impact your ability to buy or sell a home?
Generally, homeowners aren’t “stuck” with their current property just because it’s held in an irrevocable trust. The trust — not the individual — legally owns the home, so the trustees (in Lisa’s case, her sons) would be responsible for managing the sale.
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Here’s what typically happens:
- The trustees approve and sign off on listing, negotiating, and selling the property.
- The sale proceeds go back into the trust account, not directly into Lisa’s personal bank account.
- The trust can then use those funds to purchase a new home, which will also be owned by the trust.
There’s no rule requiring the replacement property to be of equal value (3). If Lisa wants to downsize, the trust can buy a less expensive home, and the remaining funds would stay in the trust — either Lisa’s benefit (depending on the trust terms) or for eventual distribution to her sons.
If you're in a similar situation, keep these points in mind:
- Review your trust agreement: The rules depend on how the trust was written. Trusts created for Medicaid or asset protection purposes may include additional restrictions.
- Choose responsible trustees: Trustees have full legal authority over the assets in the trust, so select individuals you can depend on to act in your best interest.
- Plan ahead for taxes: If the property has appreciated significantly, the sale could trigger capital gains taxes. Some exemptions may apply if the trust qualifies for a home sale exclusion (for example, if the grantor lived in the home for at least two of the last five years), but eligibility depends on the trust’s structure and tax reporting method (4).
For Lisa, the good news is that she isn’t required to buy another $1.1 million home. Downsizing is possible, but she’ll need to coordinate with her sons as trustees and follow the trust’s terms carefully.
The broader takeaway is that irrevocable trusts can be powerful financial tools — but they trade flexibility for protection. Before creating one, homeowners should consider their long-term goals, need for mobility, and comfort with giving up control. What feels like a smart move today could become a constraint down the road.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Investopedia (1); Nerdwallet (2, 4); Marketwatch (3).
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Danielle is a personal finance writer based in Ohio. Her work has appeared in numerous publications including Motley Fool and Business Insider. She believes financial literacy key to helping people build a life they love.
